NOT FOR SALE: Warwick-based ICOA fell victim to a scam when a press release claimed that Google had purchased the company for $4 million. The release went out on the AP wire, allowing the parties responsible to sell stocks for more than they were worth and turn a profit.

The Associated Press left a little egg on their face yesterday when a press release of dubious origin got past their editors and was passed on to other media outlets, where it laid an egg in the financial and business press, where even a minimal fact-check revealed it to be, well, preposterous:

“Google has bought an operator of Wi-Fi hotspots in high-traffic locations such as airports, hotels and fast-food restaurants. Google Inc. is paying $400 million for ICOA Inc., a Warwick, R.I. company, as part of the search company's efforts to diversify its portfolio,” read the story.

They withdrew the story when other media did some basic fact checking and learned that even ICOA’s optimistic estimate of a staff between 20 to 40 employees is pretty small for a company that would be worth $400 million. ICOA started to dispel the rumor as soon as they heard about it. But not before it was circulated around the world via the Internet and brought all eyes to focus on the small hi-tech company with its home office on Airport Road.

“Thanks for your inquiry and the steps you have taken to verify the validity of the PR [press release]. Unfortunately not all news wires have taken these steps prior to re-circulating a fake PR, ” George Strouthopoulos, CEO of ICOA responded to the Beacon in an email Tuesday.

Strouthopoulos was understandably upset. ICOA is a healthy business and if you have ever gone to a café or stayed in a hotel that offered free wireless computer access, it very well may have been installed by ICOA or one of its national partners. When the FCC sold the rights to broadband frequencies in the 1990s, this was the technology they were anticipating; many small broadband licensees maintaining a network of transmitters capable of broadcasting data in digital form within certain bandwidths. ICOA has been doing well enough, but it isn’t the sort of small or medium-sized high tech company that Google has bought in the past.

“The thing is, I don’t even know these people [PRWeb, the company that disseminated the release],” said Strouthopoulos, 72, who is retired now and a consultant to ICOA. He said he can’t believe that they didn’t fact check it. “We rarely put out any press releases and when we do, we use big companies in Boston or New York, professional public relations people.”

But that’s where AP’s editorial cheeks redden. It issued the following release:

“Associated Press is withdrawing its story about a purported acquisition of ICOA Inc., a wireless and broadband internet provider, by Google Inc. ICOA says the story is not true, and said a purported news release about the acquisition was a hoax. Google declined to comment, but a person close to Google with knowledge of the situation also said the report was not true. The person declined to be named because she wasn't authorized by Google to speak on the record.”

According to Arik Hesseldahl of the All Things D, an online tech journal, there were a number of red flags that should have caught an editor’s eye:

“There was no financial information saying exactly how shareholders of ICOA would be compensated. Also, ICOA’s market capitalization, according to Yahoo Finance, is less than $850,000, with an enterprise value of $3.15 million,” Hesseldahl continued, “If that press release were true, Google would have been paying a premium amounting to more than 470 times its most recent price, and 126 times its enterprise value.”

Hesseldahl’s conclusion (published Monday afternoon and shared by most of the media by Tuesday) was that the press release that AP relied on was part of a “pump and dump” scam, one of the many that are attempted daily over the Internet.

The scammers often pretend to have insider tip sheets about rising “penny stocks.” Scammers put out huge volumes of these emails announcing a “hot” stock that is literally selling for pennies a share. According to several sources, ICOA’s stock price went from $.01 to $.05 after the phony press release went out.

News outlets pulled or amended their stories as soon as they learned it was a hoax, but not fast enough to prevent the penny stock shares briefly leaping, according to the British newspaper, The Guardian.

“More than 3.321bn shares traded hands before the stock was frozen. ICOA trades about 926,000 shares on an average day.”

The Guardian quoted a small business stock analyst executive who is familiar with the “pump and dump” game. He said he has seen quite a few but was surprised at the audacity of this particularly brazen scheme. The usual scam is to promote a small, obscure company with shares cheap enough for the “marks” to bite. If enough of them bite, the scammers go home with a relatively small haul but usually such frauds avoid high profile companies like Google. Just doing the math gives you an idea how much money could have been made in a few hours of trading. The problem is, given that the size of the company and access to Internet records, as well as trading accounts, the acquisition story was quickly exposed as a fraud. The small business analyst predicted the culprits would soon be identified, but the money may already be gone into bank accounts in Nigeria.

Penny stocks are not necessarily bad investments, but that can be very risky. They are sold over the counter but not on standard stock markets like the New York or American Stock Exchanges because they do not do the amount of financial reporting that is require by the Securities and Exchange Commission to be traded on the big boards. It’s not because there’s anything inherently dishonest about over-the-counter stocks listed on what used to be called “pink sheets” for the color of the paper the lists were printed on. Many small publicly trade companies, like ICOA, simply can’t afford the regular audits and reports demanded by the exchanges. But, with less than voluminous information about a small company readily available, buyers and brokers who deal with “pink” stocks have to do their own research. “Pinks” can range from reasonable chance of success all the way down to caveat emptor; the Latin term brokers use for let the buyer beware. It would be grossly unfair to ICOA if their reputation suffers from this fraud. From the scrutiny brought down upon it since this story broke, absolutely no one has questioned the integrity of ICOA’s business practices or the quality of its services.

PRWeb, a service of the Maryland-based Vocus Marketing public relations firm, has been essentially selling an email and Internet mailing list to its clients and it doesn’t claim journalistic standards, but it does claim to have the ear of the media. On its website PRWeb claims:

“PRWeb ‘democratized’ news distribution, transforming the ‘press release’ from an expensive tool used by large corporations to an inexpensive yet highly effective way for organizations of all sizes to distribute their news on the Internet, increase their visibility online and attract customers.”

More established PR distribution networks like Business Wire and PR Newswire may be relishing the problems the ICOA press release has been causing PRWeb. New rivals like PRWeb have undercut the established players in recent years, who themselves have undergone some growing pains in recent years. PR Newswire had to tighten up its checking procedures in 2010 after a hoax release falsely claimed President Barack Obama had ordered an investigation into General Mills' supply chain. PRWeb has learned the same lesson.

“Even with reasonable safeguards, identity theft occurs, on occasion, across all of the major wire services. We have removed the fraudulent release and turned the matter over to the proper authorities for further investigation.”

But ICOA’s Strouthopoulos is not so sure there were any reasonable safeguards:

“This was a hoax. We are investigating the source, so far it originated from Aruba!” he said. “She promised ICOA to remove and retract the press release five hours ago. Looks like she did remove the press release, but still waiting for the report on their investigation as to who is the originator … Someone, I guess a stock promoter with a dubious interest, is disseminating wrong, false and misleading information in the PR circles.”

But it is too soon to assume that whoever sent the phony press release from Aruba is sitting back sipping rum and coke on a sugary white beach.

In his account of the ICOA affair, Hesseldahl recalls a similar incident at the turn of this century. In 2000, a student at a California community college was convicted of wire fraud for sending a fake press release about the company Emulex for his own profit. The release said that the SEC was investigating Emulex, that its CEO resigned and that the company would be revising its earnings. In 16 minutes, its price went from $104 to $43 as 2.3 million shares were sold. Emulex’s market capitalization fell by more than $2 billion. The hoaxer made $250,000 on his trades, but he was eventually exposed and was forced to pay back his profits with interest, a total of $353,000, and a civil penalty of $102,642.

Hesseldahl reminds his readers that many news organizations published the release without checking the facts.

“Traditionally, journalists don’t bear any responsibility for the losses or gains incurred by the mistakes they make, or the false news they repeat,” wrote Hesseldahl. “But it’s not exactly stretching the argument to say that when they’re less than careful, in cases like this, they can become unwilling accomplices to a serious financial crime.”

As for Strouthopoulos, he’s getting a bit weary of all the attention, and the idea that he’s hit the digital lottery.

“I got a friend who called me about the $400 million who said, ‘When do we break out the champagne?’ he said, sounding good-natured after it all. “I told him, ‘If you break out the champagne, you’re gonna pay for it!’”

Hi. My name is Arik Hesseldahl al AllThingsD. You've referenced me in the story above as "Alex Hesseldahl." Would you mind correcting my name? Thanks. The original story about this is here: http://dthin.gs/SvyIyI